Accelerated retail
As we edge towards reopening much of UK non-food retailing it is worth preparing some warnings. The first few days will feature queues of people flocking to stores up and down the country. Talk of sales records will abound. And the relief will be palpable. We all desperately need to feel that normality is around the corner. But no one should mistake relaxation with a return to where we were. Nor mistake early behaviour with anything that might be sustainable.
While social distancing remains central to staff and customer welfare it will be virtually impossible to trade non-food stores profitably. There will be much lower footfall. Even if average spend rises, it will be unable to compensate for fewer transactions. Costs will be higher from the need to manage footfall inside and externally, and installing safeguarding equipment, screens, sanitisers, cleaning etc instore. The reality of these new trading economics will be set against the gradual end of the very significant “cost holiday” over the recent past. Once retailers have to pay their staff, landlords and suppliers again, viability going forward needs to be judged against lower revenues, a very painful prospect.
The coming 12-18 months will be very hard to read. Against the background of a deep recession, UK retail is set to become much more polarised. Online will be much bigger than it was, growing share from 30% pre-Covid to a little over 40%. This will itself massively increase physical cost of sales and the need to shut physical capacity (already chronic pre-crisis) will be greatly magnified. A much bigger online market will make retail as a whole even more price driven than it already is. And it will act to push margins down further.
This rather apocalyptic outlook will certainly spell the end for many retailers no longer fit for purpose. But it certainly does not mean the end of successful retail businesses. Those retailers who came into this crisis strong will be the winners longer term. Those with clear offers and focused leadership, able to be self-challenging and truly embrace change, not just talk about it, will make good returns.
Much of what happens over the coming months will be misleading. Reading between the lines will be essential. Covid-19 has removed lots of seats around the table and when the music stops, many will be left standing. A leaner, fitter for purpose retail industry will emerge with more room for the winners to thrive.
** I support retailers and stakeholders with strategic advice. If you think I can help, drop me a line – richard@richardtalksretail.co.uk